One theme that continues to catch sail is the concept of consumers trading down. For example, I see more and more consumers flocking to online sites like
vs. more expensive alternatives. Priceline has soared as a result. In fact, the entire Internet surge is a play on cost-conscious consumers.
Another sector that continues with that theme is the generic drugmakers. They have seen their shares surge on the idea of consumers trading down to generics rather than paying up for name brands.
is one such stock. It distributes prescriptions, over-the-counter drugs and nutritional products, and its charts reflect a significant turnaround in the fundamentals.
With HITK, it's not too late to get in from my perspective. I say this for multiple reasons.
- The stock is confirmed bullish on all three time frames.
- The all-time high is $32.93, 17% higher than last week's closing price.
- There is volume at the all-time highs and serves as a magnet which is dragging prices higher.
- Sales are skyrocketing -- up some 62% year-over-year -- and the return on equity is up 24% over the trailing 12 months.
With solid fundamentals, it's not surprising that the charts for Hi-Tech Pharmacal don't disappoint.
Here's the view from a long-term time frame perspective. In it, we see HITK attacking the highs with volume expansion. Big money has been moving into this stock since July; it's unlikely the big money is done.
On this time frame, we can identify two possible buy zones. Typically, one doesn't time his entry based on the long-term chart, but instead uses it to confirm direction and to determine longer-term swing points that offer support and resistance.
Switching to the weekly chart -- the intermediate-term time frame -- the ideal buy zone crystallizes.
The area highlighted on the chart is anchored by the September surge in price and volume as well as the dual December days that confirmed the uptrend again as prices traded over the October swing high with volume.
On the shortest time frame, we can now identify the areas in which entries can be made with the idea of an overall trade that we can scale into.
Again, notice the confirmation of the bullish trend on this time frame as well. The highest-risk entry zone is in the $26 to $27.50 range. It's the highest risk because on an intermediate-term time frame you would want to hold onto the stock if it was to retrace back into the $22 to $23 price range.
Why so far? That would be the case because if prices were to retrace that far on the long- and intermediate-term time frames there would still be nothing wrong with the stock; that would be a natural retrace. As long as volume doesn't expand into those high volume daily bars, then it's most likely just a retrace, nothing more.
When trading a stock, I always look to develop a trading plan that provides entry with reasonable risk. When stocks with excellent charts and great fundamentals have run as far as they have then buying the stock necessarily carries more risk. The way to reduce the risk is to scale into the trade at key areas if the stock behaves as it should when it retraces into those price points. You have to scale in because if you don't you may simply miss the entry altogether. You have to recognize that many times the stock will simply not give you an ideal entry price.
So with those thoughts and these charts, I leave you with another trading idea. Until next time, keep trading the charts!
At the time of publication, Little had no positions in the stocks mentioned, though positions can change at any time.
L.A. Little, author, professional trader and money manager, writes daily on
, a free educational site for traders and investors. He has been featured in numerous publications and is the author of
His background includes degrees in philosophy, computer science, computer information systems and telecommunications. With a trading philosophy centered on capital protection first and the accumulation of consistent gains over time, L.A. espouses a simplistic technical approach to trading the markets that is a throwback to the days of past. With a focus on swing points and the qualification of trends, L.A. provides a breath of fresh air to an otherwise crowded room of derivative indicators with the emphasis on technical minutiae.